Government to Cap Performance Security Payments for Critical Mineral Auctions

Stakeholders must submit their comments by January 19, 2024

December 27, 2023


The Ministry of Mines has proposed changes to the Mineral (Auction) Rules, 2015, to cap the amount of performance security and upfront payments payable after winning the rights to extract minerals. The move addresses concerns regarding financial barriers that might impede bidder participation in auctions of critical minerals.

Stakeholders must submit their comments by January 19, 2024.

The ministry has identified certain mineral blocks, particularly those rich in critical and strategic minerals, with high value of estimated resources (VER). Consequently, the existing requirements for performance security and upfront amounts, based on a percentage of VER, have become substantial.

Recently, the ministry invited bids to grant concessions for 20 critical mineral blocks across seven states and one union territory. The critical minerals essential for renewable energy listed in the auction include lithium and graphite.

The Mineral (Auction) Rules, 2015, already include caps for net worth requirements at ₹2 billion (~$24 million) for the auction of mining lease and ₹1 billion (~$12 million) for the auction of composite license. The bid security is ₹500 million (~$6 million) for auctioning the mining lease and composite license.

However, there are currently no caps on performance security and upfront amounts.

The amendments propose to cap upfront payment and performance security for mining leases at ₹5 billion (~$60 million) each. Additionally, the performance security for a composite license is proposed to be amended with a cap of ₹2.5 billion (~$30 million) before issuing a composite license and ₹5 billion (~$60 million) before issuing a mining lease.

The performance security amount must be maintained by the successful bidder until the expiry of the mining lease period, with adjustments every five years based on the reassessed value of estimated resources in the block.

The upfront amount is fully adjusted against the auction premium payable by the successful bidder on the commencement of production.

If implemented, these amendments would apply to the preferred bidder selected after the proposed amendments’ commencement date.

In September, the government announced a 25% incentive on the approved project cost for exploration agencies to enhance the exploration of critical minerals.